Topic 5: Social Interactions

Social dilemma

Actions taken independently by self-interested individuals result in a socially suboptimal outcome

Payoffs

Outcomes for every possible combination of actions

Information structure

What each player knows at each stage of the game

Nash equilibrium

A Nash equilibrium is a situation in a game where no player can gain by unilaterally changing their own strategy, given that all other players keep their strategies unchanged.
There is no individually profitable deviation for either player.

Pure strategy

A specific, deterministic action a player chooses in a game

Mixed strategy

A probability distribution over pure strategies

One-shot game

A game that is played only once, with no future interactions between the same players

Repeated game

A game where the same stage game is played multiple times by the same players

Action

A single move that a player makes at a specified time, such as choosing an output level or a price

Strategy

A plan that specifies the full set of actions that a player will make throughout the game and may involve actions that are conditional on prior actions of other players or on additional information available at a given time

Allocation

Outcome of an economic interaction

An allocation is Pareto-efficient if

Nobody can be better off w/o making somebody worse off

Producer surplus is

Profits plus fixed costs